Firm‐Level Financing Strategies and Environmental Risk: Global Evidence

ABSTRACT Debt capital is an essential component of external financing; it is frequently dynamic in response to economic conditions and uncertainty. This study examines how environmental risks (ERs) affect capital structure for an international sample of companies in 47 countries from 2002 to 2020. The study identified ERs as a significant determinant of capital structure, and their effect on capital structure decisions varies. High ER exposure reduces debt utilisation, particularly long‐term debt, while increasing short‐term debt utilisation. A robust ER management profile could help mitigate the effects of ER while maintaining access to the debt capital market within borrowing boundaries.